Trade Deficit Fell Sharply in April as Port Disruptions End

The trade deficit has been distorted in recent months by the West Coast port disruptions earlier this year. Trade likely will exert less significant headwinds on U.S. GDP growth in Q2 than it did in Q1.

Distortions from Port Disruptions Finally End

The U.S. deficit in international trade in goods and services dropped sharply to $40.9 billion in April from a revised figure of $50.6 billion in March (top chart). This eye-popping monthly decline in the trade deficit simply unwinds most of the moonshot that had occurred in March. Looking at the two sides of the trade ledger, exports of goods and services rose $1.9 billion in April while imports nosedived $7.8 billion. What is going on with the nation’s trade accounts?

Most of the volatility in the trade deficit over the past few months reflects the labor disruptions that occurred at some of the nation’s West Coast ports. Non-petroleum imports declined in January and February as inbound cargo ships waited to be offloaded, and then subsequently surged in March once the disruptions came to an end and the imports finally cleared customs. The $7.7 billion drop that occurred in April simply takes the level of non-oil imports back to their run rate that prevailed before the labor disruptions occurred (middle chart).

Meanwhile, the value of petroleum imports, which has plunged over the past few months, stabilized in April. The volume of petroleum imports has more or less held steady over the past few months, but the sharp decline in oil prices that occurred last autumn depressed the value of petroleum imports. With oil prices trending higher since March, the value of petroleum imports will likely rise modestly in coming months.

Exports were not as severely impacted by the West Coast port disruptions as imports were, but they too have rebounded somewhat in recent months. Nevertheless, in both value and volume terms the level of exports in April has not completely recovered. Indeed, real exports in April remained nearly 2 percent below their October peak. This weakness in exports in recent months reflects slow economic growth in some of America’s major trading partners as well as the effects of dollar appreciation since last summer.

Net exports were a significant headwind to GDP growth in the first quarter, slicing a staggering 1.9 percentage points off of the topline GDP growth rate. The sharp drop in import volumes and the 2.4 percent increase in export volumes that occurred in April will help to rectify some of the significant headwinds that net exports have made to real GDP growth recently. If the real trade deficit that was registered in April remains unchanged in both May and June, then trade will have little effect on overall GDP growth. That said, real imports are generally growing faster than real exports at present (bottom chart), and we expect that these trends will remain in place for the foreseeable future. Therefore, we expect that net exports will exert modest headwinds on real GDP growth in the United States in coming quarters.